ECB hawks turn dovish

EU mid-market update: ECB hawks turn dovish; FX market braces for potential bilateral intervention; TSMC Q1 results and guidance.

Notes/observations

- EU bond yields decline after a barrage of ECB speak pushing a dovish rhetoric. ECB’s Nagel, a strong hawk, said that likelihood of June cut had increased, while Vasle, also a hawk, sees about 100bps of cuts in 2024.

- Prospect of joint Asian FX intervention remains in focus with continued consultation between Korea, Japan and US.

- Bitcoin halving expected tomorrow on Apr 19th, BTC/USD holding above 60K ahead of event.

- Earnings Recap: TSM earnings guided Q2 strong, noted still not able to meet customer demand for AI, however, sees automotive chip demand dropping; ABB tops estimates with stronger than expected order momentum; Nokia top line missed and sees challenging environment, predicts weak first half profit generation; EasyJet trades higher after healthy easter demand with increased volume and pricing for summer bookings.

- Asia closed higher with KOSPI outperforming +2.0%. EU indices are +0.1-0.8%. US futures are +0.1-0.3%. Gold +0.8%, DXY -0.1%; Commodity: Brent -0.7%, WTI -0.8%; Crypto: BTC -3.0%, ETH -2.7%.

Asia

- Australia Mar Employment Change: -6.6K v +10.0Ke; Unemployment Rate: 3.8% v 3.9%e.

- Australia Q1 Business Confidence: -2 v -6 prior.

- China Mar Swift Global Payments (CNY): 4.7% v 4.0% prior.

- BOJ Noguchi (dissenter) noted that it was vital for BOJ to continue easing for labour market; Thought keeping negative rate was appropriate in March.

- US, Japan, South Korea held Trilateral meeting in wake of yen's slide to 34-year low. The Financial Ministers agreed to closely consult on FX market (**Insight: Analysts: Rare agreement may heighten chance of FX intervention).

Global Conflict/tensions

- US said to have agreed to Israel's plan to Rafah operation in exchange for a limited response to Iran.

Europe

- ECB's Vasle (Slovenia, hawk): Forecasts deposit rate closer to 3.00% by year end provided disinflation goes to plan (**Note: Deposit Rate current stands at 4.00% (implies 100bps in cuts).

- ECB’s Schnabel (Germany) commented that should be prudent to continue to consider the baseline forecast as just one input to policy decisions. Noted that markets expect ECB to continue to pay more attention to actual inflation outcomes.

- ECB Chief Lagarde reiterated Eurozone inflation was different from that in the US; European growth was mediocre and much slower than in the US.

- BOE Gov Baily commented at the IMF meeting on UK inflation and noted it was actually pretty much on track for where we thought we would be on inflation. Expected that next month's number will show quite a strong drop.

Americas

- Fed’s Beige Book noted that the overall economic activity expanded slightly on balance since February. Regional economic activity is increasing, consumer spending is up, tourism activity is growing, and home sales are improving across the country.

- Fed’s Bowman (voter, hawk): Progress on inflation has slowed and perhaps stalled. Current monetary policy was restrictive but time would tell if it was 'sufficiently' restrictive.

- Fed's Mester (voter) stated that wanted to be pretty confident inflation is on this downward trajectory. At some point we would start to easy policy; but not in a hurry.

Energy

- US re-imposed oil sanctions on Venezuela after broken election promises. Maduro’s government had “fallen short” on commitments to hold a free and fair presidential election this year.

- Venezuela Oil Min Tellechea later commented that US sanctions would not have an impact.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.27% at 499.88, FTSE +0.40% at 7,879.23, DAX +0.03% at 17,791.95, CAC-40 +0.58% at 8,027.87, IBEX-35 +0.81% at 10,720.56, FTSE MIB +0.10% at 33,668.00, SMI +0.10% at 11,242.70, S&P 500 Futures +0.26%].

Market focal points/key themes: European indices open higher and remained upbeat through the early part of the session; falling yields seen once again as the narrative supporting risk appetite as energy prices retreat; among sectors leading the way higher are industrials and utilities; lagging sectors include energy and health care; banking sector supported following earnings from Nordea; oil & gas subsector under pressure following large drop in crude prices; Hipgnosis receives takeover offer from Concord; Arbonia sells its climate unit to Midea; reportedly Taqa considering bid for Naturgy; earnings expected in the upcoming US session include Netflix, Elevance Health, Blackstone and Infosys.

Equities

- Consumer discretionary: EasyJet [EZJ.UK] +4.0% (Q2 trading update, notes positive outlook), Deliveroo [ROO.UK] +3.5% (trading update), Edenred [EDEN.FR] +4.5% (Q1 trading update, beats estimates, affirms guidance) - Consumer staples: Danone [BN.FR] +1.5% (Q1 trading update, beats estimates, affirms guidance).

- Financials: Segro [SGRO.UK] +1.0% (Q1 trading update) - Healthcare: Sartorius Stedim Biotech [DIM.FR] -10.5% (Q1 results, below estimates).

- Industrials: ABB [ABBN.CH] +5.0% (Q1 results, notes stronger than expected order momentum), Rentokil Initial [RTO.UK] -4.5% (trading update) - Technology: ASML [ASML.NL] -0.5%, Infineon [IFX.DE] -2.0%, STMicroelectronics [STM.FR] -1.0% (TSMC Q1 results and guidance) - Telecom: Nokia [NOKIA.FI] +1.5% (Q1 results).

Speakers

- ECB's De Guindos (Spain) commented that inflation to decline at a slower pace in medium term; Domestic price pressures remained elevated. Reiterated Council stance that if inflation conditions were met then would be appropriate to reduce monetary policy restrictions. Reiterated Council view of not pre-committing to any particular rate path.

- Sweden Central Bank (Riksbank) Bunge reiterated that there might be scope for rate cut in May or June; Inflation was stabilizing at target but process was not smooth.

- BOJ Financial System Report maintained its assessment and noted the overall stability was being maintained. Resilience to rising interest rates were improving. Banking sector loss due to real estate shock were limited. - Equity price indicator turns 'red'; signaling overheating.

- China PBoC Dep Gov Zhe Hexin reiterated govt stance to keep the exchange rate basically stable; stance would not change. Foreign exchange market showed strong resilience. Would gradually open up the bond market.

Currencies/fixed income

- USD encountered some retracement following a recent strong rally. Dealers attributed the soft tone after G7 Finance Ministers reaffirmed their commitment on FX. Dealers took this G7 comments as a stand of unity and could heighten chance of FX intervention (particularly against the yen). Dealers also cited some unwinding of safe-haven flows reflecting an improving risk mood on reports Israel aborted strikes against Iran twice this week.

- Other Far East central banks continued the rhetoric on FX as Indonesia intervened to stabilize the rupiah and China PBoC reiterated its warning against one-sided yuan moves.

- EUR/USD drifting towards 1.07.

- USD/JPY at 154.35 with the 155 Neiborhood eyed as possible intervention level.

- EU bond yields decline after a barrage of ECB speak pushing a dovish rhetoric. ECB’s Nagel, a strong hawk, said that likelihood of June cut had increased, while Vasle, also a hawk, sees about 100bps of cuts in 2024.

Economic data

- (NL) Netherlands Mar Unemployment Rate: 3.6% v 3.7% prior.

- (EU) EU27 Mar New Car Registrations: -5.2% v +10.1% prior.

- (CH) Swiss Mar Trade Balance (CHF): 3.5B v 3.7B prior; Real Exports M/M: -1.7% v +0.2% prior; Real Imports M/M: -2.3% v +3.6% prior; Watch Exports Y/Y: -16.1% v -3.6% prior.

- (NO) Norway Q1 Industrial Confidence: 0.0 v -4.3 prior.

- (JP) Japan Mar Final Machine Tool Orders Y/Y: -3.8% v -3.8% prelim.

- (EU) Euro Zone Feb Current Account: €29.5B v €39.3B prior.

- (PL) Poland Apr Consumer Confidence: -11.5 v -12.0e.

- (IT) Italy Feb Current Account: +€2.3B v -€1.1B prior.

- (GR) Greece Feb Current Account: -€3.2B v €1.7B prior.

- (PT) Portugal Feb Current Account: €0.1B v €0.9B prior.

- (HK) Hong Kong Mar Unemployment Rate: 3.0% v 2.9%e.

- (EU) Euro Zone Feb Construction Output M/M: 1.8% v 0.2% prior; Y/Y: -0.4% v -0.3% prior.

Fixed income issuance

- (IN) India sold total INR270B vs. INR270B indicated in 3-month, 6-month and 12-month bills.

- (ES) Spain Debt Agency (Tesoro) sold total €6.135B vs. €5.5-6.5B in 2027, 2030, 2034 and 2066 bonds.

- Sold €1.50B in 2.50% May 2027 SPGB bonds; Avg Yield: 2.986% v 2.896% prior; bid-to-cover: 2.52x v 2.32x prior.

- Sold €1.53B in 1.95% July 2030 SPGB bonds; Avg Yield: 2.950% v 2.684% prior; Bid-to-cover: 2.04x v 1.63x prior.

- Sold €2.07B in 3.25% Apr 2034 SPGB bonds; Avg Yield: 3.251% v 3.191% prior; bid-to-cover: 1.84x v 1.81x prior.

- Sold €1.035B in 3.45% July 2066 SPGB; Avg Yield: 3.865% v 1.307% prior; Bid-to-cover: 1.76x v 1.27x prior.

- (FR) France Debt Agency (AFT) sold total €12.417B vs. €11.0-12.50B indicated range in 2027, 2030 and 2032 bonds.

- Sold €2.637B in 0.00% Feb 2027 Oat; Avg Yield: 2.85% v 1.84% prior; bid-to-cover: 2.57x v 2.68xprior.

- Sold €3.238B in 2.50% Sept 2027 Oat; Avg Yield: 2.83% v 2.71% prior; Bid-to-cover: 2.43x v 2.40x prior.

- Sold €5.171B in new 2.75% Feb 2030 Oat; Avg Yield: 2.79% v 3.30% prior; Bid-to-cover: 2.08x v 2.73x prior.

- Sold €1.371B in 0.00% May 2032 Oat; Avg Yield: 2.83% v 2.59% prior; Bid-to-cover: 2.94x v 2.79x prior.

- (SE) Sweden sold total SEK500M vs. SEK500M indicated in 2032 and 2039 I/L Bonds.

Looking ahead

- (IL) Israel Apr 12-month CPI Forecast: No est v 2.8% prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-year, 5-year and 10-year bonds.

- 05:40 (UK) BOE allotment in 7-day short-term repo operation.

- 05:50 (FR) France Debt Agency (AFT) to sell €1.5-2.0B in 2029, 2034. 2039 and 2053 Inflation-linked Bonds (Oatei).

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (DE) ECB’s Nagel (Germany).

- 08:30 (US) Apr Philadelphia Fed Business Outlook: 2.3e v 3.2 prior.

- 08:30 (US) Initial Jobless Claims: 215Ke v 211K prior; Continuing Claims: 1.82Me v 1.817M prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (RU) Russia Gold and Forex Reserve w/e Apr 12th: No est v $598.3B prior.

- 09:15 (US) Fed’s Bowman.

- 09:15 (US) Fed’s Williams.

- 10:00 (US) Mar Existing Home Sales: 4.20Me v 4.38M prior.

- 10:00 (US) Mar Leading Index: -0.1%e v +0.1% prior.

- 10:00 (SE) Sweden Central Bank (Riksbank) Jansson.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 11:00 (US) Fed’s Bostic.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (CO) Colombia Feb Economic Activity Index (Monthly GDP) Y/Y: 1.4%e v 1.6% prior.

- 12:00 (CH) SNB's Martin at event in Zurich.

- 13:00 (US) Treasury to sell 5-Year TIPS.

- 13:30 (PT) ECB’s Centeno (Portugal).

- 13:30 (DE) ECB’s Schnabel (Germany).

- 15:00 (AR) Argentina Mar Trade Balance: $1.2Be v $1.44B prior.

- 15:00 (EU) ECB’s Vujcic (Croatia).

- 17:45 (US) Fed’s Bostic.

- 19:30 (JP) Japan Mar National CPI Y/Y: 2.8%e v 2.8% prior; CPI Ex-Fresh Food (core) Y/Y: 2.7%e v 2.8% prior; CPI Ex-Fresh Food, Energy (core-core) Y/Y: 3.0%e v 3.2% prior.